Thursday, March 19, 2009

Reading Assignment

The best (and worst*) thing I've read on the economic collapse and the failure to do anything about it that will actually work.
No Return to Normal

Why the economic crisis, and its solution,
are bigger than you think.

By James K. Galbraith

In short: There's a way out, but the way things are going now, we're fucked. This is worse than the Great Depression, because nobody is proposing anywhere close to a bold enough plan to fix the public sector and get things going, and there won't be WWII to carry it through. Even with all that working, it still took twenty years to rebuild the economy. These days, between the A.D.D.-media, the next-cycle-only politicians and the panic-or-party jackasses on Wall Street, that will never suffice. Even if Obama took the steps necessary (and nothing indicates he can or will), he will pay too heavy a price for it, control will change hands in 2012 0r even 2016, and any progress he starts will be immediately undone.

The only thing that will make me feel any comfort would be for Obama to fire his current crew of in-over-their-heads insiders and replace them with guys like Galbraith, Krugman Nouriel Roubini and Nassim Taleb, and let them get to some real work.

That doesn't seem likely.


Mike said...

I agree with you . . . to a degree. Even Galbraith admits, about midway through the piece, that it was The War that "ended" things and began the process of getting things back on track.

In light of that analogy, what do you want anyone to do? Surely you don't want to mobilize tens of millions of soldiers, put the nation on a wartime economy (with rationing, mass nationalization, and high inflation)?

Mr Furious said...

I'm not sure where the disagreement begins...The way I read that piece, Galbraith explains how much bolder (than possible today) action by FDR, coupled with the sacrifice and productivity of WWII are the only reasons things managed to get back where they were.

That's why I think we're screwed. As Galbraith explains—in a way I haven't seen anywhere else—all the analysis is being based on post-War models and therefore are worthless. It's a compelling argument.

The Obama team (and everyone else) is still working under the assumption that the market is self-correcting and will eventually reach a balance again. I agree with Galbraith that they are wrong.

A strategy based on restoring the financial system—even a better-regulated one—to what it was before seems futile and doomed to failure.

They are taking a top-down approach. By "fixing" the banks, they believe lending will occur and things will begin to restore themselves—how is that not "trickle-down economics?" Hasn't that been effectively buried by what's occured?


Even if Obama had an epiphany and woke up tomorrow and cleared the decks and tried to do everything Galbraith suggests, it won't work—he'd have to replace half the spineless Democratic caucus in Congress to get anything through, and I don't see the country being anywhere near patient enough for this to work. Remember also, that FDR had more than eight years to do this.

Anonymous said...

Reading that article makes one realize that it is very likely that we are really, really fucked. There is no way that would happen. Even if every Congressional Democrat went along with it (providing of course the Administration decided to do an about face on their current tact) there would be such an incredible uproar from the ninnies on the right that it would be impossible for all or even any of this to happen.

The question in the face of likely worsening economic times what does one do an an individual. Assuming you aren't face down in the mud due to being fired, "Madoff-ed" or mortgage-screwed what do you do to protect yourself and your shit? Do you take what you own and turn it into cash (or some other currency) and hunker down (like that's going to help things if large numbers of people do that) or do you just suck it up and go through the daily routine hoping that through force of will, undeserved optimism and some pure fucking luck you come out the other side?

steves said...

There is some decent evidence that a fair number of FDR's policies prolonged and made the Depression worse than it could have been, so the question then becomes what policies should we implement? The right ones or the wrong ones?

Applesaucer said...

Mr. Furious,

Galbraith did a three-part TV Interview on Geithner's plan, the banks and the economy. He really slams Geithner and Obama, basically saying that their plan doesn't do the simple and time-tested thing -- put the banks into receivership -- due to their political influence. I agree with him 100% on the first two parts but, as I said earlier, I'm not in Galbraith's camp when it comes to "Stimulus."^gspc,^dji,c,bac,jpm,WFC